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| Author: | Flor, C.R. |
| Title: | Capital structure and assets: Effects of an implicit collateral |
| Journal: | European Financial Management
2008 : MAR, VOL. 14:2, p. 347-373 |
| Index terms: | finance capital structure of companies asset valuation debt restructuring models |
| Language: | eng |
| Abstract: | This paper explores a firm's capital structure choice with assets having outside value. Valuable assets implicitly provide a collateral, increasing tax shield exploitation. This paper's key feature is asset value (here as: a-v.) uncertainty, implying that it is unknown ex-ante whether the equity holders ex-post optimally sell the assets or reoptimize the capital structure. Ex-ante, more uncertain a-v. decreases leverage, but not firm value, and selling the assets becomes less likely. Firms should tend to invest in assets whose value is less correlated to changes in earnings etc. |
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